Cash Flow Tips for Small Business: What You Need to Know and Why

by Dawn Fotopulos on May 7, 2011

Cash flow tips for small business owners will generally be the MOST IMPORTANT advice they receive on how to run their business. But what is cash flow? That’s a question I get often from small business owners in my classes.

Just follow these steps:

DEFINE "CASH:" Cash is the cold, hard, green stuff you get to run your business. It’s like the gas in your car. If you have a lot of gas, you can go a long distance. Cash works the same way. Cash is crucial.

REMEMBER CASH IS AN ASSET: So many people have been running on credit that they actually no longer make the distinction between credit and cash. Cash is an asset. Using a credit card is a liability. Cash is something you OWN. Credit cards are NOT cash.

MEASURE THE FLOW OF CASH: So how do you know how much cash you have? You have to measure the flow of cash in and out of your business, or like the bean counters like to say, "Cash Flow." It's just like your checkbook. Debits and Credits. In and out.

DEFINE IT: Cash flow is simply tracking the level of cash in the business at any point in time. Here’s how:

START WITH THE CASH BALANCE: That's the total amount of cash, you have at the beginning of the month. The bank usually gives you that.

ADD THE CASH THAT FLOWED IN: You got cash from customers paying you for your products or services. Don't confuse this with total sales. Just count the currency, cleared checks, Paypal payments, or credit card transactions for the month.

TAKE OUT THE EXPENSES: Deduct the cash that flowed out that month to pay expenses.

SEE WHAT YOU HAVE LEFT: Check the leftover or "Ending Cash Balance." You’ve accounted for the additions and subtractions to your starting balance. Bean-counters call this accounting on a "Cash Basis."

So, what is cash flow? It’s really not complicated. If you can manage your personal checkbook, you can easily answer the question, “What is YOUR cash flow?”

Cash flow management can be tricky. That's why we've asked our veteran small business owners to share their top tips on how you can best manage your cash flow. We got some great responses and we’ll be sharing them with you all this week.

Be sure to check out these timely tips from proven small business owners:

Don’t miss great advice from the experts that will help you improve your small business’s cash flow!

Christopher B. Spellman for BestSmallBizHelp.com contributed to this report.

And if you get stuck, don’t be afraid to hit the Panic Button. It’s the only help desk for small businesses online. No nonsense. No kidding.

Don’t forget to watch our training videos. Don’t know what a P&L is? Don’t know how to prevent bankruptcy? You can’t miss these videos, available to you 24/7. Go to our Learn section to watch as often as you like. Beyond finding the cash flow tips for small business, you'll learn highly valuable tips you can’t afford NOT to watch!